CITIES AS GROWTH
ACCELERATORS:
FOSTERING NATIONAL
AND URBAN DEVELOPMENT
POLICIES FOR SUCCESS
CITIES AS GROWTH
ACCELERATORS:
FOSTERING NATIONAL
AND URBAN DEVELOPMENT
POLICIES FOR SUCCESS
Title
Cities as Growth Accelerators: Fostering National and Urban Development Policies for Success
Editor
CAF
This document was prepared for the Vice Presidency of Social Development, CAF
by The Growth Dialogue Institute
José A. Carrera, Vice-president of Social Development
Hely Olivares, Principal Executive of Social Development
Director of the project
Danny Leipziger, Managing Director of The Growth Dialogue Institute
Authors
Jitendra N. Bajpai
Elisa Muzzini
Review and edition
Bárbara Zamora, Samuel Fernández
Translation and edition
César Montufar, Ana Gerez
Graphic design
Estudio Bilder / Buenos Aires
Cover photo
Steven Wei
The views expressed in this publication are the responsibility of the authors and do not necessarily represent
the official position of CAF.
The digital version of this book is available at: scioteca.caf.com
© 2016 Corporación Andina de Fomento
All rights reserved
CONTENTS
Introduction
1 — Global urbanization trends
Overview of Urbanization in Sub-Saharan Africa,
South Asia and East Asia
Growth Drivers and Inhibitors
Towards more sustainable and productive urbanization
2 — Main Urbanization Trends in Latin America Key features of urbanization in Latin America
Urbanization and economic development trends in Latin America
The evolution of the urban system in Latin America
3 — Nexus Between Urbanization, Trade and Growth
in Latin America: The Role of Connective Infrastructure
9
13
14
17
19
21
22
23
26
Connecting Beyond and Behind Borders
Connecting Cities and Bridging Spatial Disparities
Connecting people to opportunities within cities 33
35
37
41
4 — Concluding Remarks and Policy Observations
45
References
47
FIGURES
Figure 2.1 Urbanization and Economic Development in Selected Latin American Countries,
1960-2013
Figure 2.2 Night Light Pollution Image of South America, 2006
Figure 3.1 Modal Shares of Travel in Selected Latin American Cities (2007)
24
27
42
TABLES
Table 2.1
Table 3.1
Competitiveness Ranking of Latin American Cities Within Top 60 World Cities
Estimated Transport Externalities in Selected Large Cities of Latin America
30
43
BOXES
Box 2.1
Box 3.1
Box 3.2
Box 3.3
Estimates of Agglomeration Economies: A Review of the Literature
Korea: A Successful Case of Spatial Transformation
Metropolitan Management in Seoul
The CAF and Argentine Cities
25
38
39
40
ACRONYMS
BRT
COP EMDE
FDI
FMI
IFI
ODA
OECD
PPP
SDG
SEZ
SSA
Bus Rapid Transit
Conference of the Parties (to the United Nations Framework Convention on Climate Change)
Emerging Markets and Developing Economies
Foreign Direct Investment
International Monetary Fund
International Financial Institutions
Official Development Assistance
Organisation for Economic Co-operation and Development
Private-Public Partnership
Sustainable Development Goals
Special Economic Zones
Sub-Saharan Africa
——
INTRODUCTION
10 — Cities as Growth Accelerators: Fostering National and Urban Development Policies for Success
There is ample evidence to support the view that
urbanization is strongly correlated with income
gains, and that productivity is enhanced by
agglomerations. It is also well known that migration
and the pull towards cities, because of the potential
for employment and better public services, is an
inexorable phenomenon; we see its effect in rising
urban populations worldwide. What is sometimes
less well recognized is that over-concentration in
a single primary city in developing countries can
be to the detriment of the growth of secondary or
intermediate size cities. Indeed, Duranton (2014)
finds that a single primate city, despite its economic
dynamism, may not always serve as growth engine
in a midsized economy and surely not in larger
ones in the absence of thriving secondary cities.
Moreover, the existence of large slum populations
in and around urban centers both limits the benefits
of agglomeration economies and also lowers the
well-being of the urban poor, whether measured
by indicators of health, access to basic services,
affordability of transport or access to decent housing.
Indeed, this “ double-edged sword of urbanization “
lies at the heart of the Habitat III agenda as well as
at the core of the achievement of global objectives,
such as the Sustainable Development Goals (SDGs).
It is important to recognize that the attainment
of individual Sustainable Development Goals
(SDGs), such as SDG 11 on housing and sustainable
cities, cannot occur or indeed be contemplated
in isolation. Consider, for example, the SDGs
aimed at employment creation, those dealing
with infrastructure, and still others focusing on
inequality. The nexus of aims related to improved
well-being involves the interaction among these
aspects and hence policy discussions need to
be comprehensive, integrated, and coordinated.
Moreover, the attainment of these goals and many
other SDGs will happen or not happen in cities. This
is a reality of where new populations will be located,
namely, in urban concentrations of various sizes. The
direction of this paper, therefore, is to underline the
need to see urban development as part of national
development strategies and as being indispensable
for the achievement of long-term development
goals. It is also argued that this process and the
way in which the additional 2.3 billion inhabitants
of cities by the year 2050 will be integrated into the
economic and social fabric of societies forces us to
urgently examine aspects of spatial development.
Literature suggests that optimal primacy —defined
as the level of primacy that optimizes productivity
growth— varies with level of income. Whereas high
concentration is important to growth at an early stage
of economic development, when infrastructure
is scarce and knowledge accumulation is low, its
importance declines as growth progresses. On
the basis of a cross-country analysis for the period
1960-1995, Henderson (2003) finds that optimal
demographic primacy declines linearly with output
per worker and that deviation from optimal primacy
is very costly in forgone output (see also Henderson,
2000; Davis and Henderson, 2003). Furthermore,
the notion that spatially distributed economic activity
is beneficial for national growth has been noted
in the literature, where the preferences afforded
to the capital city or the largest city in the country
are well documented as well as the fact that there
is less functional specialization of urban centers in
emerging markets and developing countries than in
advanced economies.
Over-concentration can be potentially harmful
for overall productivity if it involves the sacrifice
of localization economies stemming from the
emergence of manufacturing activities in secondary
cities. It can also be detrimental for efforts to
control pollution and traffic congestion, manage
vulnerability to disasters, and deal with the spread
of slum populations in major cities assuming that
such challenges are more easily managed with
more dispersed populations. Finally, the absence
of secondary growth poles can compromise the
growth prospects of lagging regions by leading
to an outflow of the young and better educated
workers who are attracted by better job prospects
and bright lights in the largest cities.
The purpose of this paper —“Cities as Growth
Accelerators”­— is to delve into the question of
spatial policies from the vantage point of what is
best for the achievement of national development
goals. National strategies aim to increase economic
growth, reduce poverty, and improve welfare for a
11
large segment of society. In successful countries,
one sees a clear link between these national aims and
efforts and the process of urban development. Given
the costs of overconcentration, the lack of policy
effort at coordinating national and urban policies
to achieve more spatially equitable development
is puzzling. This paper seeks to draw lessons and
observations from other parts of the world that can
be generalized for the benefit of Latin America in
particular and can provide insights for other regions
as well. In this context, we are cognizant of the major
challenges facing Sub-Saharan Africa, a continent
urbanizing rapidly but not benefiting sufficiently
economically from that concentration process.
The convening of Habitat III provides a unique
opportunity to view the goals of the conference
within the broader context of urban development,
growth and coordinated spatial policies. It is difficult
to examine urban issues in isolation. The location of
people and their basic needs, including housing,
water and sanitation, electricity, transport, and
security are inseparable from economic activity and
employment. For this reason, the nexus of national
economic development and urban development
requires simultaneous attention. The contribution of
the paper is in part to find the synergies between
urban development policies and national growth
approaches and in part to identify ways in which
the interventions of governments at national and
local levels can be mutually re-enforcing. Areas
that merit special attention are connectivity and
infrastructure as both investments are critical for
promoting more spatially distributed and sustainable
development and enhancing overall productivity in
Latin America. The pay-offs to these investments
are therefore large for economic development and
welfare improvements as well as for environmental
management.
The organization of the paper is as follows:
a. Chapter 1 discusses global urbanization trends in
the context of growth performance and regional
dynamics. The focus is on both population trends
and growth drivers with special emphasis on the
East Asian experience of rapid urbanization and
economic development. Particular attention
is then placed on ways in which urban growth
can be better harmonized with national growth
objectives, especially in the context of the global
growth slowdown, for more sustainable and
productive spatial development.
b. Chapter 2 describes the salient urbanization
trends in Latin America, including demographic,
economic and physical expansion dynamics
as well as governance challenges. The focus
is on the unique patterns of urbanization and
economic development in Latin America, the
evolution of the urban system and the new urban
challenges associated to the most recent urban
trends in the region.
c. Chapter 3 highlights how urban development
and economic growth are strictly interwoven
with the geography of trade in Latin America.
It describes the nexus between urbanization,
trade and economic development in the
region, and discusses the catalytic role that
connective infrastructure can play to support the
development of integrated and sustainable urban
systems in the context of Latin America.
d. Chapter 4 concludes with a focus on policy issues
facing the conference. In particular, the paper
examines areas where timely interventions by the
CAF and others can make a significant impact on
the quality of urbanization by its contributions to
economic growth and social development.
1—
GLOBAL
URBANIZATION
TRENDS
14 — Cities as Growth Accelerators: Fostering National and Urban Development Policies for Success
This chapter first reviews global urbanization
trends, with a focus on Sub-Saharan Africa, South
Asia and East Asia; it then compares and contrasts
two main models of urbanization and economic
development —urban growth led by export-oriented
industrialization (typical of East Asian countries) and
urban growth led by service-based consumption
and informal economies (characteristic of African
countries, as well as many South Asian and Latin
American economies). Finally, the chapter discusses
required interventions and enabling factors for more
productive and equitable spatial development,
with a focus on connective infrastructure, whose
importance for the development of integrated
and sustainable urban systems is described in
more detail in Chapter 3 in the context of the Latin
American region.
OVERVIEW
OF URBANIZATION
IN SUB-SAHARAN
AFRICA,
SOUTH ASIA
AND EAST ASIA
While all regions have their own unique
circumstances, and while it is not the paper’s
purpose to dig deeply into each of them, the
circumstances of Sub-Saharan Africa, South Asia
and East Asia are illustrative of different sets of
challenges to sustainable economic growth and
urbanization and it is therefore useful to examine
them in the content of Habitat III. In addition to
looking at national development goals terms of
incomes and livelihoods, poverty reduction, and
health status, there are environmental concerns
highlighted by COP211 and embodied in the green
growth agenda that is currently being discussed in
other fora. Similar to our views on the importance
of connecting national and urban agendas in
the interest of productivity enhancing spatial
development, we believe that growth should be
sustainable from an environmental point of view,
not because of political ideology, but rather out of
sheer national necessity. The interplay of this triad
of objectives involving growth, urban development,
and environmental management can be seen in
three regional contexts as elaborated below.
Sub-Saharan Africa. The continent has witnessed
a rapid rise in urban populations and can expect to
see a further rise in urbanites of up to 50 percent
within the next decade in a dozen or more cities
(see Freire, Lall, & Leipziger, 2015). Despite good
economic progress in the period 2000-2010,
Sub-Saharan Africa (SSA) is now facing a secular
downturn due to low commodity prices, declining
demand from China, and renewed financial stress
caused by over-borrowing in some countries, lack
of competitiveness in others, and a failure to use
fiscal space when available. In the absence of high
commodity prices, sources of growth are elusive.
This is troubling for urban populations, some of
which are growing at unprecedented rates in
urban environments without prospects of formal
employment or even decent informal wage incomes.
Countries heavily dependent on energy exports,
such as Nigeria, suffered large losses, ranging from
6 to 12 percent of GDP —with the Republic of Congo
and South Sudan suffering even larger income
declines (IMF, 2015).
In SSA, governments need to both find sources
of growth and urban sources of employment in
tradable sectors to enhance productivity of urban
development, and promote sustainable growth of
secondary cities to counterbalance the growth of
1. The twenty-first session of the Conference of the Parties
(COP21) to the United Nations Framework Convention on Climate
Change (UNFCCC) took place from 30 November to 12 December
2015, in Paris, France.
15
primary cities that are already teeming with people.
Without new sources of growth and more spatially
equitable development, governments will not have
the fiscal resources to deal with the growing need
for urban infrastructure investments, not to mention
investments in human capital required to make cities
more productive. In addition, several countries have
suffered setbacks from natural disasters (including
Ebola) or from internal conflicts. Going forward,
most countries in SSA will be highly vulnerable
to the impact of climate change. The ongoing
process of climate change is expected, over time,
to have significant adverse effects, with more
frequent natural disasters and adverse pressures
on productivity in agriculture—the largest employer
in SSA countries (IMF, 2015). The question is how to
break this vicious cycle and where to begin.
Many argue that the starting point for more
spatially equitable development in SSA needs
to be investments in energy (Foster & BriceñoGarmendia, 2010) since every economic activity
needs it and households require it. Yet, when looking
at electrification rates in SSA, not only are they low,
but the gap between access to electricity in the
capital cities and that available in the second or
third largest city is shockingly wide. This situation
persists despite the continent’s abundance of clean
and efficient hydropower, a woefully underutilized
resource. A triple-win for potential employment
and growth, household welfare gains for the poor,
and management of the future energy balance
can be captured via hydro-investments in SSA.
Hence, a major national program of energy related
infrastructure investment with a focus of connecting
secondary cities to electricity grids could help to
spur new growth in the region (Foster & BriceñoGarmendia, 2010).
South Asia. The sub-continent, and here we refer
to India and Bangladesh in particular, are exhibiting
among the highest economic growth rates among
Emerging Markets and Developing Economies
(EMDEs), and in the case of India even surpassing
the remarkable growth performance previously
only seen in recent decades in China. South Asia
is home to 6 of the world’s 28 megacities (that is,
those with populations of at least 10 million as of
2014): Bangalore, Delhi, Dhaka, Karachi, Kolkata,
and Mumbai (UN-DESA-Population Division, 2014).
Looking at India first, it is worth noting that a) the pace
of poverty reduction is not as strong as that seen in
China, b) the pace of urbanization that is occurring
is massive and has already produced 58 cities with
populations exceeding 1 million inhabitants; and c)
urban expansion has produced in India 6 of the 10
most polluted cities in the world based on airborne
PM 2.5 emissions (WHO and WB as reported in
Financial Times2). It should also be noted that 3 of
the remaining 4 most polluted cities are located
in Pakistan. In terms of annual emissions, India is
on pace to overtake China as the world’s greatest
source of particulates, a designation that will result
in worsening health indicators in India before long.
Combined with other aspects of pollution, India
is sacrificing future economic welfare with an
unhealthy energy mix.
In the case of Bangladesh, the issue is the extremely
high population density (the highest in the world
excluding city states and small islands) and the
proportion of the population near the coast, where
the climatic risks are highest. Population density has
many benefits, but it also has its limits, and these
may already have been reached in the major urban
centers of Bangladesh. Given its exceptionally high
population density, Bangladesh has to increase the
economic density of its urban areas and urbanize
even more forcefully than did countries that have
already undergone this transformation (Muzzini &
Aparicio, 2013).
India and Pakistan, with relatively young populations,
need to invest in secondary growth poles —in order
to do so, both countries need to divert investment
funds from the largest cities and also have a national
strategy on the strategic location of economic
activity. India has a plethora of export processing
zones that are given extra incentives; yet these
are not connected, as they were in East Asia, to
viable export activities of sufficient scale. Thus,
territorial planning, including land use planning,
2. Article published in the Financial Times on 18 November 2015.
16 — Cities as Growth Accelerators: Fostering National and Urban Development Policies for Success
land zoning and land pricing lie at the core of
incentivating movement of populations to cities of
more manageable size. This problem plagues as well
other countries in Asia as seen, for instance, in the
spatial and urbanization challenges facing Vietnam
(see World Bank-Ministry of Planning and Investment
of Vietnam 2016).
In all these cases, urban sprawl is endemic and
cities do not have the resources nor the capacity
to provide strategic infrastructure and services to
promote more sustainable urban development;
and in spite of the strategic importance of urban
development for national growth, most national
development strategies in South Asia are not
aligned with urban policy, the latter often left to
individual states in the case of India to deal with. In
federated countries like India (as well as in federal
countries in Latin America such as Mexico, and
Argentina), the answers lie with fiscal redistribution
and revenue sharing and other principles of fiscal
federalism, examined, inter alia, by Bird; Bahl, Ingram,
and Wetzel; and Stren. Nevertheless, national
development strategies need to be based on a solid
understanding of where economic activity will be
located and favor an urbanization pattern that taps
the economic potential of all urban areas. Hence, to
address the most binding constraints to sustainable
urban development in South Asia —that is,
underinvestment in infrastructure and the absence
of coordinated territorial development and spatial
planning efforts, the key intervention is infrastructure
spending and the most pressing goal is connectivity
(see Yusuf, 2014; Glaeser, 2008; Ellis & Roberts, 2016,
among others).
East Asia. East Asia’s urban areas included eight
megacities with populations over 10 million, 123
large cities with one to 10 million people, and 738
intermediate and small cities with 100,000 to one
million people. Almost 200 million people moved to
urban areas in East Asia in the decade from 20002010. Yet, most of East Asia’s population still lives
in rural areas, with only 36 percent of the region’s
population in urban areas. Rapid urbanization is
therefore likely to continue for decades, requiring
proactive policies to provide land, housing, and
services for the new urban residents. The Pearl
River Delta in China —which includes the cities of
Guangzhou, Shenzhen, Foshan and Dongguan— has
overtaken Tokyo as the world’s largest urban area in
both size and population, with more inhabitants than
countries such as Argentina, Australia or Canada.
China’s government-implemented urbanization
dominates East Asia with 600 of the region’s 869
urban areas located in the country, which also has
more than two-thirds of East Asia’s total urban land.
Despite the visibility of megacities, most population
and urban growth in the region is now happening in
intermediate and small cities (see World Bank, 2015).
There is a strong correlation between urbanization
and income growth in East Asia: both have been
led by export-oriented industrialization, as is well
documented (see World Bank, 1993; Leipziger,
1993, among many). Economic output per capita
increased throughout the region as the percentage
of people living in urban areas went up. East Asia
accounted for almost two-fifths of global growth in
2015, more than twice the combined contribution of
all other developing regions. Growth has remained
resilient and is expected to ease only modestly,
from 6.5 percent in 2015 to 6.3 percent in 2016
and 6.2 percent in 2017-18. The forecast reflects
China’s gradual shift to slower, more sustainable and
balanced growth. The Philippines and Vietnam have
the strongest growth prospects, both expected to
grow by more than 6 percent in 2016 (see World
Bank, 2016a) and both face issues of increasing
urban populations.
Despite appearances, urban expansion in the
region has been relatively spatially efficient. Urban
population densities in the East Asia region have,
on average, been increasing. Most urban areas
outside China became denser. Although many
Chinese urban areas declined in population density,
the country’s overall average urban population
density remained stable. Overall, the rate at which
urban areas expanded physically varied widely
between countries. Mostly rural countries had the
highest spatial expansion rates (such as Lao PDR
and Cambodia), while industrialized Japan had
the lowest rate of increase despite containing the
second-largest amount of urban land behind China.
However, expanding urban areas often cross a
17
number of administrative or political boundaries
such as municipal borders, which fragments
government management and revenue sources.
Efficient urban outcomes need to match physical
expansion with access to jobs, affordable housing,
public transportation, and health and education
services, in particular to expand opportunity
for disadvantaged communities. Environmental
impacts and risks are also a major concern in East
Asia given the magnitude of urbanization and future
climatic risks (see Bigio, 2016).
East Asia has also been among those regions that
have successfully in many instances decentralized
the delivery of basic services to lower levels of
government. There are well known advantages in
terms of greater accountability and more efficient
delivery. There are also counter arguments in terms
of political capture at the local level and inefficiency
of infrastructure delivery where scale is an important
element (see Mansuri & Rao, 2013). What has become
clear is that devolution of responsibilities without
financing will not work and that devolution requires
a much higher degree of coordination, such as was
previously provided (at least in theory) by national
efforts. This process of fragmentation may well
require new models of metropolitan governance,
and, in some cases, strategic consolidation of
authority (see World Bank, 2015).
GROWTH DRIVERS
AND INHIBITORS
The current slowing of the global economy is
dampening the growth prospects of developing
economies, and importers of energy and raw
materials are not doing much better than exporters.
While large economies such as China can rely to a
degree on domestic demand to sustain a portion of
their growth, the longer-term performance of smaller
economies depends upon the strength of external
demand for their tradables. Despite lower growth of
global trade, outward orientation still provides the
best guide for resource allocation, productivity, and
competitiveness (see the Commission on Growth
and Development, 2008; 2009).
The confluence of rapid income growth, fast
urbanization, and export driven development is
seen most clearly in the experience of East Asian
countries, where growth and urbanization has been
led by industrialization. However, the experience
of many Sub-Saharan African countries (as well as
several countries in Latin America and South Asia) is
one of growth led by non-tradable services and lowproductivity informal economies, raising questions
about the long-term sustainability of the growth
process and urbanization. The rest of this chapter
contrasts these two urban growth models —urban
growth led by export-oriented development and
urban growth led by service-based consumption
and informal economies.
The East Asian Growth Pattern:
Urban Industrialization and Growth
Past rapid growth in East Asia was a function of strong
demand mainly from the advanced economies for
the manufactures produced by the likes of Korea,
Malaysia and Thailand and the competitiveness
of manufactures. Other developing countries in
South Asia, Sub-Saharan Africa and Latin America
benefitted much less for this demand because their
product offerings were not as competitive, their
firms less outward oriented and entrepreneurial, and
governments less committed to export-led growth.
The export prowess of the successful East Asian
economies buoyed domestic growth rates through
the demand pull mechanism; their swift ascent up
the industrial learning curve and the acquisition
of world class manufacturing capabilities steadily
increased total factor productivity that magnified
the supply push exerted by rising factor inputs.
The focus on manufacturing and the efficiency
18 — Cities as Growth Accelerators: Fostering National and Urban Development Policies for Success
of manufacturing, the products of which were
continually tested in global markets, gave East
Asians an edge not attained by other regions.
High levels of domestic resource mobilization
—supplemented by inflows first of ODA and
subsequently of FDI— enabled the front running
East Asian economies such as Korea, Singapore
and Taiwan to deepen industrialization, to
invest in complementary energy, transport, and
telecommunications infrastructure and in urban
services so that bottlenecks encountered by
industries proved to be manageable and did not
compromise their growth momentum. There is
little evidence of infrastructure building ahead
of demand —as in China during the past five
years (see Richburg, 2011). In Korea, China and
other Southeast Asian economies, industry did
periodically encounter infrastructure constraints
whether of energy or road or of port infrastructure;
however, the abundant supply of capital and the
capacity to construct the needed facilities in record
time meant that constraints did not persist nor lead
to a loss of export markets. In effect, infrastructure
supply responded with a lag and the lag was short
in duration. In many other late starting economies
in South Asia and Sub-Saharan Africa, the limited
competitiveness of relatively protected industrial
producers3 —often small in size— was further
undermined by the inadequacy of energy and
transport infrastructures that persisted.
In this connection, East Asia was able to realize many of
the agglomeration and scale economies that accrue
from large industrial cities. These productivity gains
were not always the result of nationally coordinated
and implemented urban plans. Nevertheless, policies
were designed to dramatically improve productivity.
A few cities —the capital city and a handful of others
adjacent to natural harbors— grew as industries
3. African, Latin American and South Asian countries favored
import-substituting industrialization behind tariff walls and were
slow to perceive the advantages of export led growth. Hence
their competitiveness was undermined by the smallness of
scale, slow progress up the learning curve and less technology
transfer whether from investment in the latest equipment, FDI or
participation in GVCs.
emerged and flourished and labor streamed in from
the countryside. Special Economic Zones (SEZs)
generally in the vicinity of port cities attracted FDI
and served to catalyze industrialization. Hong Kong
and Singapore were SEZs in their entirety; starting
in 1965, Taiwan established highly successful zones
in Kaohsiung City, Nantze and Taichung; and Korea
joined the others shortly thereafter by allocating
space for industrial parks and zones in Ulsan, Kuro,
Masan, and Iri (Richardson, 2004). The reason
why the East Asian cities were able to maintain
productivity is because in East Asia, the development
of an urban industrial ecosystem (with the zones
often serving as a seedbed) generated substantial
spillovers, including income gains for the expanding
urban workforce, and national gains that provided
the resources that could be ploughed into urban
housing, infrastructure and services.
The Africa’s Urban Growth Pattern:
Services Based Consumer Cities
with Informal Economies
Some commentators including Jedwab (2010; 2013)
have pointed out that Sub-Saharan African cities —and
many also in South Asia and Latin America— are not on
an industrializing trajectory; in fact both Sub-Saharan
Africa and Latin America are deindustrializing4 and
only 6 percent of the Sub-Saharan Africa’s workforce
is employed in manufacturing (“More a Marathon
than a Sprint”, 2015). The economy of these cities
revolves around an informal sector5 and non-tradable
services. The driver of growth is urban consumption
—not industrial production supported by exports.
Modest growth rates frequently keyed to the trade
in primary commodities (which supports urban
consumption) (Jedwab, 2010; 2013), while low rates of
local revenue generation and insufficient investment
4. Brazil is one of the countries where the process of
deindustrialization has attracted much attention. See the review
by Williamson & Zagha (2013); Nassif, Feijó, & Araújo (2015).
5. Close to 83 percent of the employment in Kenya in 2012 —10
million people— is of an informal nature. See Njeri Kinyanjui (2015).
19
in urban housing and infrastructure have resulted
in urbanization that is not productivity augmenting
and may in fact depress productivity because of
congestion and pollution. The widening gap in urban
services between the primary city and intermediary
cites and worsening income inequality are other
manifestations of failed urban policies, and lack of
coordination between the national and urban agenda.
While the problem might be most severe in the large,
overcrowded, metropolitan agglomerations, such as
Lagos and Johannesburg, secondary cities where
many urban populations reside are not necessarily
faring any better due to poor planning, inadequate
investment, and politics. The limited scale of tradable
sectors and local revenue mobilization adversely
affects growth, employment, and productivity as well
as the supply of local infrastructure services.
Looking ahead, increasing populations especially in
Sub-Saharan Africa, South Asia and the Middle East
together with climate change that could reduce
cultivable land, employment and agricultural yields,
will most likely accelerate the pace of urbanization
(Henderson, Storeygard, & Deichman, 2014). A
continuing dearth of manufacturing industry 6 will
mean that more people must find jobs in services
sector; hence, productivity gains from urban
agglomeration will depend upon the emergence
of clusters of tradable services. Moreover,
urban sustainability in a warming world, with all
environmental risks it entails for coastal cities and
cities in dry interior regions, will call for much greater
attention to the design of cities (e.g. compactness,
locating houses away from steep slopes and
areas subject to flooding) and the resilience of
infrastructure, services and underpinning institutions
(see Bigio, 2016).
TOWARDS MORE
SUSTAINABLE
AND PRODUCTIVE
URBANIZATION
Urbanization is well past the halfway mark worldwide
(54 percent in 2014) and it has breached 80 percent
in Latin America. By the middle of the century over
two thirds of a larger global population (6 billion plus)
(UN-DESA, 2014) will be residing in cities. Perhaps
a fifth will be living in megacities (currently the 28
megacities are home to 12 percent of the urban
population) and the rest in secondary cities. Raising
living standards and meeting the SDG goals will be
a major challenge for countries low on the income
scale especially those that are most exposed to
climate change. Both countries that are highly
urbanized and others that are still at an intermediate
stage need a long-run national strategy and urban
policies to improve living conditions —i.e. reduce
the numbers living in slums7 — and extract the
maximum productivity benefits from the increasing
concentration of economic activity in cities,
while promoting the sustainable development of
secondary cities in line with their economic potential.
Countries at an earlier stage of urbanization enjoy
greater potential flexibility. However, others in
highly urbanized Latin America can also improve
on their current performance through targeted
investments and through a process of retrofitting
and incremental change.
Research has uncovered a number of spatial policies
that can harness the growth potential of urban
areas, thus making all cities more productive, livable,
and climate resilient. In this paper we will focus
on one of these factors, and arguably among the
6. Rodrik (2015) persuasively argues that the heyday of
industrialization as a growth driver is past. The progress of factory
automation lends credence to his claim.
7. Approximately a quarter of all urban dwellers live in slums —30
percent in Asia and 62 percent in Africa. See UN-HABITAT (n.d.).
20 — Cities as Growth Accelerators: Fostering National and Urban Development Policies for Success
most important, which is infrastructure, in particular
connective and transport infrastructure. Wellplanned and nationally coordinated investments in
connective infrastructure critically support the growth
of productive activities in line with cities’ economic
potential. It also is the basis for promoting growth of
tradable sectors by increasing connectivity among
cities within the national economy and international
connectivity with trading partners. The quality and
adequacy of connective infrastructure is thus a
necessary condition for realizing agglomeration
economies, whether from individual urban centers,
from a network of cities or from industrial corridors
that knit cities together into seamless production
systems. More and better connective infrastructure
is part of the solution to help raise growth by easing
troublesome bottlenecks, and enabling firms to
harvest the potential agglomeration economies
(localization and urbanization economies as well
as economies of scale) inherent in cities, as it will
be described in more detail in Chapter 3 in the
context of Latin America. There has been mounting
realization of the dearth of such investment across
the world8 and of the need to give it the attention
it deserves. The creation of the Asian Infrastructure
Investment Bank (AIIB) has helped to galvanize
international support for infrastructure development
through public initiative, which it is hoped will crowd
in private funding and expertise. Nevertheless,
infrastructure gaps remain a significant challenge
(Spence, Kanbur, Leipziger, & Manyika, 2015).
While it is clear that infrastructure can be a key
growth driver, it is useful to take note of a number
of enabling factors, which will influence the
effectiveness of any infrastructure push aimed
at enhancing productivity and growth. These
enabling factors involve current and future global
circumstances as well as the effectiveness of national
economic strategies. First, absent a pick-up in global
8. The infrastructure gap and the urgency of closing it in the face
of looming climate change is made by Bhattacharya, Oppenheim,
& Stern (2015); See also the equally persuasive case made for
infrastructure investment in the U.S. in the President’s report (2016,
ch.6) in USA-Council of Economic Advisors, 2016); Rodrik (2016)
argues in favor of the public role; and Qureshi (2016) makes the
case from the angle of sustainability
economic growth, infrastructure spending directed
at exports will deliver less “bang for the policy buck”.
This is not to say that investing in removing binding
infrastructure constraints is not the right policy,
but rather that its financing needs to be designed
with global conditions in mind. It is noteworthy in
this context, that the IMF has advocated increased
infrastructure investments in the advanced
economies as both a national as well as global
growth driver. The consensus is that the returns to
smart infrastructure spending would be even higher
in emerging market economies. Second, countries
need to increase domestic resource mobilization
and enhance implementation capacity in order to
bankroll expensive and long gestation infrastructure:
the IFIs and international capital markets can only
supplement not displace domestic investment
(see World Bank, 2016b). Resource mobilization
that is not matched with the capacity to plan and
implement efficiently and minimize leakages leads
to enormous waste. Hence a corollary to increased
domestic resource mobilization revolves around the
capability of the public sector and the integrity of
its governance. Third, the ability to attract FDI and
private investment more generally for infrastructure,
via public-private partnerships (PPPs) in particular,
depends on local governance and the degree to
which domestic investment can crowd-in private
investment, at home but even more critically from
abroad.
1—
2—
MAIN URBANIZATION
TRENDS IN LATIN
AMERICA
22 — Cities as Growth Accelerators: Fostering National and Urban Development Policies for Success
This chapter provides an overview of the most salient
urbanization trends in Latin America, explores the pattern
of urbanization and economic growth, and outlines the
recent evolution of the urban system in the region.
KEY FEATURES
OF URBANIZATION
IN LATIN AMERICA
Latin America is the most urbanized region of the
world, with an urbanization rate of 80 percent, almost
twice that of Asia and Africa, and higher than highly
developed countries. Latin America is also a highly
diverse region with urbanization patterns differing
widely across countries. About half the region’s
population is concentrated in Mexico and Brazil
(18.5 and 33 percent, respectively). The countries in
the Southern Cone (Argentina, Uruguay and Chile)
are the most urbanized, followed closely by Brazil,
which, from the 1970s onwards, has seen particularly
rapid urbanization. Central America shows lower
urbanization rates than the rest of the region, but
it is progressing constantly. In spite of the diversity,
there are common features characterizing the urban
transition in Latin America —urbanization has been
explosive, highly concentrated and unequal.
A key feature of urbanization in Latin America is that the
rural-urban shift occurred in less than 40 years. Latin
America experienced explosive urbanization over the
period 1950-90 fueled by mass migration from rural
areas. The number of cities increased six-fold, and
the region went from 40 percent of the population
living in cities at the beginning of this period to 70
per cent forty years later. It is also noteworthy that
the 40 percent level achieved in 1950 was the earliest
among regions, only reached by East Asia in 1994 and
Sub-Saharan Africa in 2013. Currently, Latin American
urbanization has decelerated, and the evolution of
urban population tends to be limited to natural growth
only. From a demographic perspective, urbanization
processes are mostly completed across the region
and, since the year 2000, the annual average urban
population growth rate has been less than 2 per cent,
a figure that broadly corresponds to natural population
growth. Yet, the region is still adding urban population.
By 2050, UN-Habitat predicts Latin America’s cities will
include 90 percent of the region’s population.
Latin America’s urban system is highly polarized
and dominated by large cities, which contribute
disproportionately to the regional economy. Latin
America’s 198 largest cities —defined as having
populations of 200,000 or more— contribute 60
percent of the region’s GDP, and the ten largest cities
alone generate half of that output. Latin America is the
region with the largest concentration of population in
mega-cities. Within the 10 top cities are four megacities with populations of 10 million or more —Buenos
Aires, Mexico City, Rio de Janeiro, and São Paulo. By
contrast, China’s top ten cities, for instance, contribute
around 20 percent of the nation’s GDP. The primacy
of the largest cities, mostly capitals, is notable both
in terms of concentration of population and national
economy. Buenos Aires, Lima, Montevideo, and
Santiago contribute over half of their national GDP and
account for more than 30 percent of their countries’
population. By comparison, the shares of national
population and GDP concentration in Sao Paulo and
Rio de Janeiro, the two mega-cities of Brazil, stand at
15 and 25 percent respectively and the share of Mexico
City is over 20 percent of population and national
GDP (McKinsey Global Institute, 2011). The lower
concentration in mega-cities in Brazil and Mexico is
explained by that fact that both countries have a group
of second-tier cities that act as a counterbalance and
therefore constitute a more diverse urban network. The
same is seen, although to a lesser extent, in Colombia,
where geographic and economic conditions have led
to more polycentric models of urban development.
On average, Latin American cities largely suffer from
the world’s highest level of social and economic
inequities. While Latin American countries have made
significant progress in their fight against poverty, and
the proportions of urban poor have fallen, in absolute
23
terms numbers are still very high. About 124 million
urban inhabitants live in poverty, or one in four urban
dwellers. Similarly, at the regional level, the proportion
of population living in slums has fallen over the past
two decades, but in absolute terms the number has
increased to 111 million people, that is, almost one fourth
of the region’s urban population. In the Latin America
region, the richest 20 per cent of the population has an
average per capita income nearly 20 times the income
of the poorest 20 per cent and it exceed 30 time in
those countries with the greatest inequality. Guatemala,
Honduras, Colombia, Brazil, Dominican Republic and
Bolivia have the most unequal distributions of income
in the region, all with coefficients above 0.56. Costa
Rica, Ecuador, El Salvador, Peru and Uruguay have lower
inequality, with Gini below 0.50. These differences
notwithstanding, when one looks at access rates for
sanitation, for example, or for affordable and accessible
transport, the region does not score well (CAF, 2015).
URBANIZATION
AND ECONOMIC
DEVELOPMENT
TRENDS IN LATIN
AMERICA
Urbanization has been accompanied by economic
growth in the region. However, a comparative
analysis among Latin American countries reveals
significant differences in the pattern of urbanization
and economic growth, suggesting that countryspecific forces affect the relationship between the
two patterns. For instance, Argentina has continued
to urbanize (albeit at a lower rate than other countries
in the region), but its economy has grown less than
other highly urbanized countries. GDP per capita
has grown by 1.6 percent annually over the period
1960 through 2012 in Argentina, compared to 2.7
percent in Chile, 1.9 percent in Mexico, and 2.4
percent in Brazil. Colombia’s GDP per capita has
grown by 2.1 percent over the same period, and
Peru’s by 1.6 percent. Countries such as Panama and
Costa Rica with significantly lower urbanization have
higher or comparable levels of economic progress,
whereas neighboring Bolivia shows a distinct pattern
of urbanization without economic growth. From
1960 through 2013, the correlation between the
percentage of urbanized population and GDP per
capita is more than 0.95 percent for Brazil, Colombia,
and Mexico; 0.82 percent for Chile; and 0.56 percent
for Peru, and 0.47 in Argentina. Bolivia is an outlier
with a correlation of only 0.27 percent (see Figure 2.1).
It is important to note, however, that urbanization
defined by country-level official definitions is
not necessarily comparable across countries.
The classification of an area as ‘urban’ is a purely
administrative decision and varies considerably
between countries, and the administrative
boundaries of a city often fail to accurately delineate
a city’s true built-up extent. Ideally, for consistent
analysis of urbanization trends, cities should be
defined using functional, not administrative, criteria.
Beyond the differing definitions of agglomerations
that complicate cross-country comparisons, the
official definitions tend to apply numerical census
or qualitative criteria that differ across countries. In
the Latin America region, a common, albeit partial,
criterion considers urban to be settlements of more
than 2,000 or 2,500 inhabitants. Defining urban
areas based on population alone has the major
drawback of not explicitly accounting for population
density, which is an important factor in delineating
the urban-rural nexus.9
9. For instance, a recent study finds that when density-based criteria
are used to define urban areas, the population living in urban areas
in Argentina is lower than the official figures. That analysis revealed
that for 91 percent of Argentina’s population to be considered urban
(in line with its official urbanization definition), all people living at
densities as low as 17 people per square kilometer (km2) would have
to be considered urban dwellers. In comparison, countries that use
population density to define urban areas use significantly higher
threshold values that average around 730 people per km2 (Muzzini,
Eraso Puig, Anapolsky, Lonnberg, & Mora, 2016).
24 — Cities as Growth Accelerators: Fostering National and Urban Development Policies for Success
FIGURE 2.1
Urbanization and Economic Development in Selected Latin American Countries, 1960-2013
Porcentaje de población
que vive en áreas urbanas
100
Uruguay
Argentina
2013
90
Chile
80
México
Perú
70
1960
Brasil
60
Colombia
50
40
Bolivia
Ecuador
30
0
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000
9.000
10.000
PIB per cápita (dólares de 2005)
Note: GDP = gross domestic product. Percentage of population living in urban areas is based on national definitions of urbanization.
Source: Muzzini, Eraso Puig, Anapolsky, Lonnberg, and Mora (2016)
Given their weight in the regional economy, cities
are critical to growth and the creation of jobs in Latin
America. The agglomeration economies present in
mega-cities and large cities, if nurtured well, hold
great potential for further growth and innovation
given their endowment of diverse mix of economic
activities, educated and high skill workers, and soft and
hard infrastructure. Research suggests that positive
productivity gains are associated with agglomeration
economies, proxied by the population size and density
of the cities, in the region. For instance, a recent study
on Argentina finds that a doubling in the population
size of the agglomerations is associated with a growth
in labor productivity of 2.2 percent in Argentina, after
controlling for cities and firms’ characteristics (Muzzini,
Eraso Puig, Anapolsky, Lonnberg, & Mora, 2016).10
10. The regression analysis uses wages as dependent variable to
capture labor productivity across 29 of the largest agglomerations
in Argentina. Agglomeration economies are proxied by the
population size of the agglomerations. The effect of the size of
the agglomerations on average labor productivity is positive and
statistically significant when controlling for firms and city-specific
characteristics, such as type of business, education, experience,
or other demographic controls. The estimated elasticity implies
that a doubling in the population size of the agglomerations
is associated with a growth in labor productivity of 2.2 percent.
The results are consistent with evidence of the higher labor
productivity associated with agglomeration economies and
indicate an attraction effect of large cities.
25
Box 2.1 —
Estimates of Agglomeration Economies: A Review of the Literature
Positive productivity gains associated with agglomeration economies are generally found in the
literature. There is, however, a great deal of variability in the magnitude of reported estimates, which
makes comparing results against a benchmark a challenging task. A comprehensive review of the
empirical literature on elasticities of agglomeration carried out by Rosenthal and Strange (2004)
argues that doubling urban size increases productivity between 3 and 8 percent. Limited evidence
exists, however, on the factors explaining such a wide range of estimates. Melo, Graham, and Noland
(2009) make an attempt to understand the range of elasticities found in the literature by identifying
some key characteristics that affect the magnitude of the results. They undertake a quantitative
review of the empirical literature on agglomeration by analyzing 729 elasticity measures taken from
34 different studies. These studies differ in the use of estimation method, time period, country of
study, level of spatial aggregation, economic sector and definition of agglomeration economies. The
authors use regression analysis to distinguish the contribution of different study characteristics to the
variance of estimates.
Factors such as country specific effects, industrial coverage, and definition of agglomeration
economies, can give rise to large differences in the results reported in the literature. For instance, the
coefficients of the individual country and continent dummy variables indicate that the heterogeneity
of urban systems across continents and countries explain in part differences in the magnitude of
the productivity returns to agglomeration. The results suggest that China, Japan, and Sweden tend
to exhibit smaller estimates of agglomeration elasticities than the US, while there are higher effect
sizes for countries in South America, and smaller effects for North America. The results also show
that service industries tend to derive considerably larger benefits from agglomerations. The size of
the elasticity for service industries is about 8 percentage points higher than the size of the elasticity
estimates for the aggregate economy. This result is consistent with the hypothesis that service
industries tend to be more dependent on proximity to large urban areas because of urbanization
economies. These findings highlight the need to consider the results of agglomeration estimates in
context and that there is no reason to expect similar estimates of comparable magnitude between
sectors, across urban areas, or among countries.
And in Mexico, a study based on a comparable
methodology finds that doubling in the size of
the agglomerations is associated with a growth in
labor productivity of 4.2 percent based on 200010 data (Ahrend, Farchy, Kaplanis, & Lembcke,
2014). However, a great deal of variability in the
magnitude of reported estimates exists, which
makes comparing results against a benchmark a
challenging task (see Box 2.1). The next section
looks at the evolution and growth trajectories of
different segments of the urban system in Latin
America and identifies the constraints that may
be preventing cities from fully taking advantage
of agglomeration economies.
26 — Cities as Growth Accelerators: Fostering National and Urban Development Policies for Success
THE EVOLUTION
OF THE URBAN
SYSTEM IN
LATIN AMERICA
Available evidence points to a possible rebalancing
of the hierarchy of cities in the region: the population
growth of the top 10 cities in Latin America is
decreasing relative to the growth of secondary cities.
In part their slowdown is attributable to the fact that
the largest cities are more established geographic
areas, while the higher growth of intermediate cities
is partially explained by the increases in the number
of such cities, as small towns grew and passed into
the category of intermediate cities. There is also
significant variation in the rates of population growth
across the top 10 cities. Buenos Aires continues to
maintain its demographic primacy (mostly due to
its peri-urban areas), growing at an average rate of
1.3 percent annually, at a higher rate than Santiago
(1 percent), or Mexico City and Rio de Janeiro, which
both had average annual growth of 0.9 percent for
2000-10, and slightly below São Paulo (1.4 percent);
on the contrary Bogotá had significantly higher annual
growth of 3.1 percent during the 2001-2010 period.
From an economic perspective, preliminary evidence
indicates that the relative weight in the economy of
top 10 cities is also declining. Although the biggest
cities continue to contribute disproportionately to
GDP, their economic growth no longer exceeds
that of the rest of the region’s economy. Since 1970,
growth rates in Brazil’s São Paulo and Rio de Janeiro
have dropped from above the national average to
below the average. Other leading cities in the region
have also recently grown more slowly than either
their national economies or their midsize peers.
For instance, Mexico City metropolitan region has
posted a slower pace of growth than the average
of the nation’s 45 lower-tier cities, defined as those
with populations of 200,000 to 10 million (McKinsey
Global Institute, 2011).
While the growth rate of top 10 cities has started
to decelerate over time, some of the lower tier
cities have experienced faster growth. In recent
decades, intermediate cities, where most of the
increasing urban populations live, have grown
at a rate somewhat higher than the top 10 cities.
Today, 188 high-growth secondary cities account
for almost one-third of the region's GDP and could
generate almost 40 percent of GDP growth to
2025 (McKinsey Global Institute, 2011). Particularly
dynamic are the border cities that benefit from
investments in industry and cities in economic
corridors. Medium size cities that are growing faster
than their national economy include those situated
on the outskirt of the largest agglomerations.
Among the most dynamic secondary cities are
Puebla, Cuernavaca, Pachuca and Toluca near
Mexico City; Campinas and Santos located less than
100 km from São Paulo, the three cities —Ciudad
Juarez, Tijuana and Nuevo Laredo at the border of
Mexico with US; and Cancun, a tourist destination.
Among other secondary cities, promising examples
of secondary cities showing more dynamism
compared to the largest agglomerations include
Belo Horizonte, Florianópolis and Curitiba (Brazil),
Medellin (Colombia), Merida (Mexico) and Viña del
Mar (Chile). A recent study found that secondary
cities in Patagnia are growing faster than average
as the result of the growth in their resource-based
economies (Muzzini et al., 2016). Nevertheless, in
other countries, the role of intermediate cities is still
marginal, as seen in limited number of intermediate
size cities in Peru and the continued primacy of
Buenos Aires.
This recent trend reflects the maturity of
development in the largest agglomerations, which
demands de-industrialization of mega-cities to
promote service sector growth, as well as the
emergence of development constraints associated
with over-concentration, such as congestion,
pollution, increased land prices, law and order
concerns, taxes and burdensome regulations,
limited access to credit and low level of innovation
(McKinsey Global Institute, 2011). The economic
growth of secondary cities has been associated with
greater specialization and dispersion accompanying
the new phase of industrialization. The increasing
27
FIGURE 2.2
Night Light Pollution Image of South America, 2006
Source: Light Pollution Atlas (2006)
28 — Cities as Growth Accelerators: Fostering National and Urban Development Policies for Success
complexity of the industrial structure result in the
location of new plants outside the largest cities,
while the increased emphasis on export production
is contributing to dispersion forces since the plants
producing for exports don’t have to be located
close to internal markets. However, initial evidence
suggests that many of the top 10 cities in the
region have started to run up against constraints
to agglomeration economies as they struggle
to cope with the demand of urban expansion in
terms of provision infrastructure and services and
core-periphery connectivity. In secondary cities
diseconomies of scale have not yet started to
outweigh the benefits of economies of scale and
localization economies (Bethell, 1998).
Despite deceleration in population growth,
the built-up space of the large agglomerations
continues to expand. Over time, average urban
density of most global cities and secondary cities
has declined as their built-up area footprints have
exceeded population growth (Shlomo, 2012). A
similar trend is apparent in Latin American cities, in
particular mega-cities. In Latin America, the overall
geographical footprint of the region’s mega-cities
and its satellite urban centers continues to spread
outwards. Large cities are engulfing small towns
and rural land on their periphery. A study of 25
randomly selected Latin American cities (UNHABITAT, 2012) shows that in the year 2000 their
average density was 70 persons per hectare in
comparison with 200-400 persons per hectare of
large Asian cities. Between 2001 and 2010 the land
area of Rio de Janeiro expanded at a rate five times
the rate of its population growth causing the city
density to drop by one-third. Similarly, Mexico City
experienced de-densification of 60 percent over a
span of three decades. Thus urban de-densification
or sprawl continues to be the general pattern of city
expansion in the region.
This expansion process transforms the geography
of cities and takes different forms —clusters of
cities, polycentric metropolitan area or simply a
large mass of contiguous urban centers. The shape
and form are conditioned by the local topography
(e.g., valleys and ocean) and the adopted policies
and regulations regarding transport supply,
land development and decentralization of jobs.
Overall, Latin American cities are predominantly
monocentric compares to the cities in the EU, US
and Asia where cities tend to develop multiple
centers of employment concentrations as they
expand. The night light image of South American
shown in Figure 2.2 displays the different physical
forms each mega-city region (e.g., Sao Paulo, Rio
de Janeiro, Santiago, Caracas, Bogota and Buenos
Aires) have taken.
As a result of the urban sprawl, the provision of basic
services has not kept pace with the requirements
of peripheral areas. Besides overconsumption of
land, poorly serviced and managed low density
urban expansion in Latin American cities has
been detrimental to the environment, the quality
of living in informal settlements, and the mobility
of peripheral communities where many poor live.
This trend reflects the insufficiency of land use
planning; poor regulation and control; and a lack of
integration between transport, land development,
and the provision of affordable housing. Such a
pattern of low-density, unplanned urban expansion
detracts from the realization of agglomeration
economies in cities of all sizes. It also raises
governance issues and fails to address persistent
social and spatial inequities.
As cities expand beyond their administrative
boundaries the problem of metropolitan
coordination across local governments and national
agencies exacerbates the planning, financing,
delivery and management of basic services
within newly urbanized areas. The administrative
borders of fast growing Latin American cities
rarely correspond to the functional relations
that they develop with neighboring settlements,
towns and sometimes states. With this mismatch
between the political and functional boundaries,
the governance of urban agglomerations has
become difficult and faces severe coordination
problems across the local entities in promoting
healthy growth of the agglomeration economy
and its supporting infrastructure and services.
Often fragmentation of governance causes suboptimal and insufficient provision of transport
infrastructure and services in the periphery and
29
to the adjacent towns. The territorial, land-use
and transportation planning and management
continue to be stymied by the territorial division
into separate municipalities. Moreover, post mid1980s the countries promoted decentralization
of political power to the sub-national levels but
they have yet to develop an efficient and effective
framework for inter-governmental relations. In
many cases the distribution of responsibilities
between levels of government has not been
supported by either a corresponding re-allocation
of resources or the requisite strengthening of
institutional capacity.
While the mega-cities are the economic
powerhouse of their respective countries, they also
face the most significant coordination challenge
due to the number of municipalities involved. For
instance, the metropolitan regions of Mexico City,
Buenos Aires, Santiago and Sao Paulo comprise 41,
32, 52 and 39 municipalities respectively. A recent
OECD study finds that for each doubling in the
number of municipalities per 100,000 inhabitants
within a metropolitan area, labor productivity in
the metropolitan area decreases by 5-6 percent
(OECD, 2015). Although the finding reflects the
city governance conditions of OECD cities, it
does highlight the potential for productivity gains
that exist for the Latin American mega-cities in
establishing an effective governance framework
for co-ordination across their local bodies. Cities
around the world have adopted some form of
metropolitan governance structure ranging from
informal coordination mechanisms between local
bodies to the creation of a metropolitan level
authority to plan and manage selected functions
of all local entities. Usually these entities undertake
planning and coordination functions for major
cross-jurisdictional
infrastructure
investments
and services (e.g., transport and solid waste),
spatial development strategy, and the protection
of ecological and environmental services (e.g.,
watershed management, air pollution and open
spaces) within their territory.
The large cities of East Asia region, with the
exception of city-states such as Singapore and
Hong Kong, are facing similar metropolitan level
coordination challenges. In Korea, following the
decentralization of power to local bodies in mid1990s, large cities struggled with the fragmentation
of regional governance issues and subsequently,
initiated the formation of metropolitan agencies.
Seoul Municipal Government encompassing 25
districts was established with an elected assembly
that was headed by the mayor. Only in 2005 was
a Metropolitan Transport Authority created for
the Seoul Metropolitan area to address the urban
mobility concerns. And in 2012 similar institutions
were established in Pusan and Ulsan metropolitan
areas. Some large cities like Jakarta, Manila, Bangkok
and Kuala Lumpur have yet to create an efficient
and effective way to integrate land development
and transport planning, regulation and investment
measures across their local bodies.
In Latin America, Lima has made progress in
metropolitan management with the establishment
of the Metropolitan Municipality comprised of a
provincial council and 42 municipalities (Klink,
2008). The Brazilian government has developed
a law on the creation of inter-municipal consortia
to strengthen the institution and organization
capacity of local bodies to effectively implement
city, regional and metropolitan functions.
However, limited progress has been made. A few
municipalities of Bolivia and southern states of
Brazil and Ecuador have initiated inter-municipal
cooperation to achieve economies of scale in
service deliveries through pooling of resources
mainly for road maintenance, tourism promotion
and environment protection. The regional transport
coordination commission of Bogota has focused
on integrating the urban transport, land use and air
quality strategy for the city region.
Overall, Latin America cities are falling behind other
regions in competitiveness. According to a recent
assessment of competitiveness of 120 global cities
(EIU, 2012), the overall competitiveness score of
thirteen large Latin American cities ranged between
a minimum of 39 (Guadalajara) and a maximum
of 49 (Buenos Aires) out of 100, the best score. In
comparison, East Asia, a high growth region, had
12 of its large cities out of its 25 with scores above
50. The assessment was based on a global survey
30 — Cities as Growth Accelerators: Fostering National and Urban Development Policies for Success
to measure the competitiveness of each city using
31 indicators under eight thematic categories:
economic strength, human capacity, institutional
effectiveness, global appeal, financial maturity,
physical capital, environment and natural hazard,
and social and cultural characteristics. The ranking
of surveyed Latin American cities across the
thematic categories (Table 2.1) illustrates the areas
of strengths and weaknesses of each city and their
category specific ranking among the top 60 cities.
Overall cities have not performed well in particular
in areas of physical infrastructure and institutional
effectiveness. And there is room for improvement
in most areas of competitiveness including and in
particular, in tradable products and services.
High inequality and segregation significantly affect
the ability of cities to generate prosperity as well
as their livability. Inadequate spatial policies have
contributed to create this uneven geography of
opportunities within cites described above. Urban
populations, especially in the top 10 cities, are
spatially divided and segregated by income with
uneven access to economic opportunities, public
transport, basic services, decent education, and
green spaces. As housing policies have failed to
respond to the needs of the poorest populations,
many peri-urban areas are becoming poverty
traps; in parallel, the tendency to create gated
communities contribute to maintain or strengthen
spatial segregation and inequalities.
Paradoxically, while urbanization has stabilized in the
region and most countries have largely completed
the urban transition, urban challenges are becoming
more complex. Latin America needs a second
urban transition, toward urbanization that is more
productive, equitable and sustainable. To move
toward this new urban paradigm, the Latin America
region needs to upgrade its largest cities, while
helping secondary cities to growth and to do so in
a smarter way. Unless the largest cities significantly
TABLE 2.1
Competitiveness Ranking of Latin American Cities Within Top 60 World Cities
Cities
Overall
Buenos Aires
Economic Physical Financial Institutio­nal
Strength Capital Maturity Effective­ness
60
Socio-​
cultural
Characte­
ristics
59
São Paulo
39
52
Rio de Janeiro
Panama
41
55
Lima
43
27
32
50
43
41
47
Santiago
México City
Human Environ­ment Global
Appeal
Capacity & Natural
Hazard
38
48
49
53
55
43
Bogota
55
Monterrey
49
11
Medellín
Belo Horizonte
26
Porto Alegre
47
Guadalajara
24
Source: EIU (2012)
57
31
enhance their productivity, address issues of
social segregation and inequality, and improve the
efficiency of their urban forms, their growth rates
are expected to remain below the average for the
region’s secondary cities—and constitute a potential
drag on Latin America’s overall rate of growth. Put
differently, Latin America needs spatial policies that
enable the largest cities to fully take advantage of
the benefits of agglomeration economies, while
controlling costs, equalizing opportunity and
improving the quality of living. In parallel, policies
need to focus on promoting the sustainable growth
of the most dynamic secondary cities in line with
their comparative advantages, and on creating
an equal playing field country wide through
the provision of basic services and connective
infrastructure. The following chapter describes how
spatial interventions in connective infrastructure —if
well-coordinated at the national, regional and city
level— can be catalytic to support the growth of
an integrated urban system and to promote spatial
development in line with the economic potential of
cities of all sizes.
3—
NEXUS BETWEEN
URBANIZATION,
TRADE AND GROWTH
IN LATIN AMERICA:
THE ROLE
OF CONNECTIVE
INFRASTRUCTURE
34 — Cities as Growth Accelerators: Fostering National and Urban Development Policies for Success
As urbanization is fundamentally interwoven with
global trade, this chapter discusses the nexus
between urbanization, trade and economic
growth in the context of Latin America, and
highlights the catalytic impact that investment
in connective infrastructure can have to support
the shift toward more productive and sustainable
spatial development in the region.
With the decline in tariff and trade barriers, Latin
American countries are now far more integrated
in the global economy than in the 1980s. The
region has almost doubled the share of exports
in its overall GDP. The proportion of industrial
products in the region’s export has steadily risen
to 50 percent, though it varies across countries,
and remains far below the East Asia’s 80 percent
(de la Torre, Didier, Ize, Lederman, and Schmukler,
2015). Urbanization and export performance are
closely linked. On one hand, increased export
orientation is influencing the urbanization
dynamics of Latin American countries. The large
cities, predominantly located along the coast,
serve as the gateway for international trade. On
the other hand, urban development has been
affected by the recent slowdown in international
trade in the region. The slowdown has exposed
the vulnerabilities of the prevailing trade pattern
that is characterized by limited diversification
in composition and high concentration in a
few destination markets. It has in particular
revealed the economic vulnerability of the more
specialized secondary cities to changes in global
prices and demand for primary commodities.
The question is how the region can address the
current vulnerabilities in the trade regime; one
approach is an increase in intra-regional trade,
as seen in Asia, in ways that strengthen the
economic potential and resilience of both large
and secondary cities.
There are many factors which affect productivity
and ultimately trade performance; however,
for most countries, deficiencies in connective
infrastructure is seen as one of the key constraints
to expanding internal and external trade. Evidence
shows that proximity to markets matters for firms’
productivity. Evidence from Brazil and the United
States indicates that doubling the distance to
dense metropolitan centers reduces productivity
by 15 percent and lowers profits by 6 percent
(Henderson, 1994; Sveikauskas, Townroe, and
Hansen, 1985). Hence secondary cities close to a
primary one have a definite advantage. Reduced
transport costs will lead to gains in productivity
and scale economies which will in turn improve
the export potential of products and services
beyond city borders.
Connectivity is a constraint not only for urban
economies, but also for national economies.
According to the World Bank’s Logistics
Performance Index (LPI), a composite measure
of the quality of logistic services, reliability
of supply chains used by producers and
exporters, and the degree of national support
for infrastructure and service provision,
performance rankings for Latin America (except
for Chile and Panama) were between 50th
(Mexico) and 121st (Bolivia) among the 160
countries surveyed (World Bank, 2014). The
lowest ranking countries were severely affected
by poor performance in the transport sector,
perhaps due to the underinvestment of the
past decades (Guerrero, Lucenti, & Galarza,
2009; Calderon and Servén, 2010). In 2010,
countries in Latin America spent on average of
3 percent of GDP on infrastructure, while East
Asian economies invested over 7 percent of
their GDP. In the LPI ranking eight out of the 11
East Asian economies were among the top 50
countries. For these top performing countries,
transport and logistics services have been the
backbone of their export oriented economies
and urbanization processes. The GDP of East
Asian countries doubled since 1970, and now
represents 40 percent of the global GDP and
more than half of the global trade and capital
flows (de la Torre et al. , 2015). As noted in the
World Bank’s East Asian Renaissance Report
(Gill & Kharas, 2007), the story of East Asia’s
success is built on the high productivity and
performance of its cities.
The rest of this chapter discusses the critical
role that connectivity plays and can play in Latin
35
America at the regional, country and local level.
It is argued that the promotion of productivity
of cities, trade competitiveness, and sustainable
economic growth is related to spatial development
and the performance of a competitive system of
inter-connected cities.
CONNECTING
BEYOND
AND BEHIND
BORDERS
The competitiveness of cities in a global
environment rests on their capacity to develop
and sustain a comparative advantage in
tradable products and services; thus the growth
trajectory of Latin American economies will
depend to a significant extent upon the export
competitiveness of its cities. The world’s most
competitive cities maintain ties with the frontiers
of ideas and technologies and attract FDI in
activities that provide knowledge transfers.
However, cities with limited connectivity, resulting
in a high share of transport and logistics costs,
will not be either competitive nor attractive to
foreign investors. It is noteworthy that compared
to East Asia, Latin America’s export bundle is
much more transport intensive with high weightvalue ratio due in part to the reliance on primary
commodity exports. Land transport based trade
among neighbors is limited, not above 10 to 20
percent in most countries excluding the border
trade between Mexico and US. Consequently,
cross-border trade depends heavily on maritime
transport. Air transport is used mainly for high
value, time sensitive products, but the world
share of air freight used by the region is only 3
percent compared to 20 percent in East Asia and
50 percent by the advanced countries (de la Torre
et al. , 2015). Therefore, quality of port services,
freight clearance and custom services, port
access to road and/or rail, intermodal transfer
facilities, storage facilities, and the quality of
shipping line services become important
determinants of trade competitiveness.
On average, for example, 40 percent of shipping
price differences between the LAC region and
the US and EU markets is the result of port and
airport inefficiencies (Guerrero et al. , 2009). Most
countries are served by the branch lines of shipping
companies that connect them to the two regional
hubs - Panama and Jamaica. Only these hubs are
directly served by global shipping companies.
Hence, low port efficiency, lack of direct shipping
links to major markets and limited competition in
maritime transport sector increase overall transport
costs in Latin America. Moreover, although Latin
American countries are closer to US, a large
economic market, the average ocean freight rate
for export to US is almost 70 percent higher than
those paid by exporters from Netherland (Guerrero
et al., 2009) and more expensive than container
shipping from Shanghai.
In addition, the global production system is
changing rapidly with the steady decline in
transport costs, accelerated use of communication
technologies, multi-modal supply chains, and new
practices of outsourcing, inventory management
and packaging. The production cycle has become
more geographically fragmented and intermediate
products come from the places that are specialized
and offer unique cost advantages, creating a web
of intermediate producers in different countries.
This trend has led to the emergence of China as
a global manufacturing and product assembly
center along with many other regional production
centers like Bangkok, Kuala Lumpur, Manila,
Singapore, Jakarta and Hanoi.
Unlike East Asia, most countries in Latin America
are poorly connected with each other. Countries
are large (e.g., Brazil and Argentina) posing
challenges for internal connectivity; topographical
36 — Cities as Growth Accelerators: Fostering National and Urban Development Policies for Success
and environmental constraints (e.g., Amazon
forest and Andean mountains) severely separate
countries and create barriers within countries;
and a large share of the population and urban
settlements are near the coast, far from the
borders with their neighbors. In Colombia, for
instance, geography poses serious challenges for
interregional transport. A relatively large number
of cities are dispersed across mountainous terrain
and far from coastal ports. Bogotá, the country’s
primary production center, is more than a day’s
drive from either the Atlantic and Pacific coasts,
where agricultural products for export, fossil
fuels, and raw materials are concentrated (Samad,
Lozano-Gracia, & Panman, 2012).
Consequently, for most Latin American countries
the cost of developing and operating land-based
road and rail connections between production
centers across countries has remained extremely
high. This limits the potential for building efficient
inter or intra-industry cross border linkages.
However, the story of the three Mexican cities
(Ciudad Juarez, Tijuana and Nuevo Laredo) at
the border with US is a good illustration of how
neighboring countries can nurture cross-border
production networks for automobile, electronics
and appliance industries —when transport costs
do not pose almost insurmountable barriers.
Similarly, in 1980s Singapore formed a growth
triangle with Johor Baru in Malaysia and Riau
island of Indonesia. Singapore supplied capital,
technology and entrepreneurship while the
other two centers provided relatively low cost
land and labor. And the Southern China, PRC,
established a cluster of industries in Guangzhou
and Shenzhen cities with the capital originating
in Hong Kong, China.
Distance from markets is a challenge in need
of urgent attention in most Latin American
countries, as it prevents cities from reaching their
full economic potential and taking full advantage
of the benefits of agglomeration economies.
The share of logistics costs to GDP in the largest
economies such as Argentina, Brazil, Chile and
Colombia are two to three times the 9 percent
level observed in EU countries (de la Torre et al.,
2015b). The landlocked countries such as Bolivia
and Paraguay need road and/or rail access to
ports in neighboring countries (Uruguay and
Chile) to overcome the inland barriers to their
exports. In other words, there is plenty of room
for improvement. In addition, improved internal
logistics can facilitate commodity shipments
from surplus to deficit regions and helps in
reducing price variations between regions. By
making timing of delivery reliable, manufacturers
reduce inventory holdings and adopt leaner, JIT
production techniques. A well-developed logistics
increases consumer’s choices and producer’s
sources of supply and brings more markets within
the reach of producers. The process ushers
product diversification and scale advantages in
using transport hubs, warehouses and logistics
services with other producers. According to
Evenett and Venables (2002), 40 percent of the
trade growth in East Asia arose by offering new
product lines and extending exports of existing
product lines to new trading partners. There is a
virtuous circle of benefits that begins will better
transport connectivity and end up with better
economic performance.
To conclude, the future prosperity of Latin
America in export diversification will be closely
tied to the expansion of hard and soft connective
infrastructure to overcome the constraints
posed by physical geography and ease internal
and cross-border bottlenecks. In parallel, Latin
American countries need to actively nurture intraregional trade and cooperation to build a regionwide competitive production network of cities.
Large countries with an export-oriented industrial
base and human capacity, such as Brazil, Mexico,
and Argentina, need to take steps to strengthen
the competitiveness of their metropolitan cities
and their connectivity to global, regional and
internal markets, including their lower tier cities
and lagging regions. For instance, these countries
may find common interest in developing SEZs,
industrial parks, and in some cases IT businesses in
strategic locations, such as towns closer to a large
city market, country borders and at the gateways
of export or internal distribution (port, airport, rail
hubs, logistics services, etc.).
37
CONNECTING
CITIES
AND BRIDGING
SPATIAL
DISPARITIES
Connecting cities increases the economic efficiency
of the entire urban system. In every country the
hierarchy of urban settlements includes (a) market
towns that can capture economies in marketing
and distribution of agricultural produce; (b)
secondary cities providing locational advantages
for different industries to develop; and (c) large
dense cities as places of diversity and for frequent
and effective exchanges between firms, industries
and knowledge workers. Transport and logistics
services facilitate movement of people and goods
between the hierarchy of agglomerations and
within them. But the level of interactions between
any two urban areas depends upon their economic
masses and the transport costs (including time) to
overcome the distance between them. Because of
this phenomenon, smaller cities and towns, which
develop at the periphery of large cities or adjacent
to megacities, usually within an hour of commuting
time, are the ones that are most advantaged, while
more distant ones are handicapped (Bertaud, 2016).
For instance, the clustering of lower-tier cities near
Sao Paulo, Rio de Janeiro, Mexico, Santiago and
Buenos Aires attests to this phenomenon. But that
does not preclude emergence of distant towns and
cities that are specialized centers (e.g., Monterey
in Mexico), tourist destinations, deliberatively
established administrative centers or, agricultural
hubs, such as Brasilia and Manaus in Brazil. There
are fewer examples of such success stories in the
smaller Latin American countries. In all cases city
growth is driven by increasing economic density,
that is, concentration of firms and industries,
which are attracted to the city to internalize
location-specific productivity gains in production,
operations and marketing. The growing cities
enhance their utility by providing quality transport
access to consumers, amenities and services, land,
and composite goods.
Transport connectivity is essential to increasing
economic density, and can play an important role
to enhance the location-specific productivity of
firms and industries in mega-regions. The process
of increasing density strengthens agglomeration
economies and generate additional benefits
to the firms and industries by increasing
opportunities for sharing, matching and
learning with other firms, industries and service
providers. Studies have found that population
and employment density of settlements fall
between 6 and 15 percent with the doubling of
distance to a highway or railways (Redding &
Turner, 2014). While the emergence of peripheral
cities help to decongest megacities by offering
cheaper land and housing, it also worsens the
problem of sprawl and de-densification. The
peripheral cities become home for the mature
industries and workers who move out from their
mega-city as seen in the case of San Paulo and
Rio de Janeiro. By 2010 the city of Sao Paulo
was left with only 23 percent of employment in
industry while tertiary sector represented over
75 percent of total output and 61 percent of jobs.
The question is what role transport can play to
enhance the productivity of firms and industries
in these mega-regions.
Since the effect of investing in connective
infrastructure is similar across economies at
different stages of development, the urbanization
history of Japan and Republic of Korea are worth
reviewing. After the World War II, the four cities
of Japan situated along the Pacific coast —Tokyo,
Yokohama, Osaka and Kobe— became the
major industrial centers. To reduce congestion
resulting from the rapid growth of these centers,
the 1962 Spatial Development Plan promoted
development of an industrial belt by connecting
the four agglomerations by a multi-modal transport
system including the bullet train, other railways,
expressways and ports. Multi-modal transport
investment took into consideration the fact that
38 — Cities as Growth Accelerators: Fostering National and Urban Development Policies for Success
different sectors respond differently to different
modes of transport, and the mode choice behavior
of people is different from firms. The transport
investment enhanced mobility of workers and at
the same time permitted relocation of industries
from the congested core to surrounding new
industrial estates. The skill and diversity of the
labor force in the urban core helped to replace
the standardized products of manufacturing with
high-tech products (Cox, 2012).
The large urban centers of South Korea underwent
economic transformation over three decades
and underpinned the country’s export oriented
growth strategy. Transport and logistics policies
and investments were critical components of
the government’s strategy to stay competitive in
response to the evolving globalization pressures.
Multi-modal transport network offered a mix of
modes that were most appropriate for different
markets and their users (see Box 3.1).
Box 3.1 —
Korea: A Successful Case of Spatial Transformation
In less than four decades, Korea’s urbanization level reached 91 percent, up from 29 percent in 1960.
The three major cities —Seoul Pusan and Taegu— were magnets for rural migrants. In the 1960s Seoul
alone absorbed 60 percent of the migrants into labor-intensive export activities and was the primary
growth driver with one-third of all manufacturing and two-fifth of national population. By the 1970s,
Korea entered into its capital-intensive growth phase by developing heavy and chemical industries. The
shift gave more locational preference to smaller port cities (Inchon, Ulsan, Pohang) and at the same time,
a process of de-concentration began (due to increasing costs in the two major cities) that favored both
satellite cities to those primary cities and the development of other areas (see Henderson, Lee, & Lee,
2001). Although in 1983 six cities of more than one million people were home to 53 percent of urbanites,
the picture in 1993 would be quite different. The southeastern corridor of the three largest cities —Seoul,
Daegu and Pusan—, which served as the spine of economic development and logistics services for global
trade, would see their share of national employment fall from 44 percent to 28 percent. The share of
manufacturing in Seoul declined from 30.5 percent in 1981 to 18.9 percent by 1995, and secondary cities
took up the slack because manufacturing remained the driver of growth in Korea.
This was not accidental insofar as government policy to promote local industrial development and
de-concentration from Seoul was backed up by a vigorous program of infrastructure investments.
The government maintained sustained support to the expansion of high quality transport and
logistic infrastructure as the structuring element of urbanization, regional development and export
competitiveness. Almost 106 thousand kilometers of national roads provided 30 minutes access to every
part of the country. A high-speed rail connecting Seoul to Pusan corridor reduced journey time from
6 hour and 40 minutes by rail in 1960 to less than two hours. The high-speed rail extension to Inchon
now connects the Pusan’s port with Inchon’s port, airport and logistics center. In 2004, the rail sector
was reformed to liberalize access to rail track use. Multimodal centers, integrated logistics terminals and
numerous provincial logistic complexes were opened. It has been documented that Korean productivity
was aided and abetted by localization economies emanating from high quality infrastructure investments
in secondary cities (Henderson et al. 2001). Going beyond the case of Korea, there is evidence that
investments in inter-regional infrastructure helps the spatial distribution of economic activity (Davis &
Henderson, 2003), a process also fostered by fiscal decentralization.
39
In both Korea and Japan, public policy played
an important role in planning and determining
the location of investments in connective
infrastructure. Infrastructure investments were
directed to reorganize the spatial geography of
economic activities and promote specialization
at desired locations. The experience of East Asian
countries shows that enhancing competitiveness
and productivity of cities as an integrated system
is pivotal to the success of national economic
development strategies. In both cases, there were
over-arching economic development agencies,
MITI in Japan, and the Economic Planning Board in
South Korea that ensured a) consistency of policy,
b) coordination of policy actions across sectors,
and c) integration of investment plans so that both
ministries and business understood well what the
public investment program was expecting to deliver.
Thus spatial development, infrastructure planning,
and national growth strategies were exceptionally
well coordinated, producing excellent results. Much
of this was replicated in other countries, with the
most success seen in China in recent decades.
The issue of metropolitan governance and
management, which was discussed earlier,
is also relevant for connectivity as relatively
few metropolitan regions manage to integrate
well their transport systems, let alone their
governance structures. Financing and politics
are usually the stumbling blocks to successful
integration of metropolitan city efforts. It is the
case in many metropolitan areas, that the megacity includes many administratively distinct and
politically independent entities. This creates
distinct disadvantages for service delivery,
especially in transport, and it can very severely
affect the fortunes of the working poor. Afterall,
Box 3.2 —
Metropolitan Management in Seoul
Seoul Metropolitan Region (SMR), which includes the provinces of Seoul, Inchon and Kyonggi, had
a population of about 3.2 million in 1960, which increased to 11.9 million in 1980 and 25.6 million by
2012. The growth of Seoul continued to spread and ultimately formed a network of cities with Seoul at
the center. With rising land value and housing shortage in Seoul, people moved to satellite cities while
industries shifted to outer areas. To connect the region and address its mobility needs, Seoul embarked
on constructing a subway network that opened its first line in 1974 and expanded to 825.2 km (13 lines)
by 2014. To abate the traffic congestion and declining use of public transport Seoul instituted congestion
charges in the center city and expanded bus lanes (almost 160 km). In 2005, a Metropolitan Transport
Authority was established to coordinate investments and policies within the SMR. To manage and
restrain development within SMR the first Capital Regional Management Plan (1984-96) was adopted.
Besides land zoning the plan proposed congestion charges on development and an overall ceiling on
industrial activities; however, the plan failed to constraint development and came under criticism. With
the decentralization of power to mayors of cities in 1995 and the economic crisis of 1997 the attitude
of local governments had shifted towards growth instead of dispersal. The second capital plan of SMR
(1997-2011) emphasized the need to attract high tech industries, and to develop the SMR as a polycentric
region with an integrated regional transport network. Moreover, with the increasing incomes and the
knowledge based economic transformation of Korea, the demand for environmentally sustainable
practices in municipal services and their living environment is also increasing.
Source: Hae & Ahn (2015)
40 — Cities as Growth Accelerators: Fostering National and Urban Development Policies for Success
Box 3.3 —
The CAF and Argentine Cities
Argentina’s urban panorama is characterized by a large concentration of economic activity in Greater
Buenos Aires (more than a third of national GDP originates there) and a further concentration in the next
5 cities, all considerably smaller but still accounting for another large part of output if not population. This
spatial concentration in the center of the country leaves many smaller yet fast-growing urban centers
in the provinces without distinct sources of growth (World Bank, 2016a). The government is attempting
through a Plan Belgrano for the ten northern provinces to promote economic growth and provide better
basic services.
The CAF announced in May 2016 that it would provide a total of $ 2billion in infrastructure and
social development lending to Argentina over the next four years with a heavy concentration on
northern provinces. This effort can be seen as a move to both develop the north and also help
make northern urban concentrations more productive and better connected to the rest of the
country. This regional development plan should be seen as part of Argentina’s push to find new
sources of economic growth and to link provincial growth opportunities with national goals of
greater inclusion.
large segments of the working poor spend large
chunks of their day going to and coming from
jobs. Management of metropolitan transportation
thus becomes a critical feature of pro-poor
interventions. One successful example of transport
coordination and integration was the alignment of
the Sao Paulo metro system with the urban light rail
expansion that reached into poor neighborhoods
and significantly reduced travel times (see
World Bank, 2012). A binding constraint is lack of
collective action that can only be overcome with
strong efforts at coordination. One successful
example of metropolitan coordination —the case
of Seoul— is presented in Box 3.2.
In a national development context, improvements
in connectivity are also needed to bridge spatial
disparities within urban systems by connecting
lagging and leading regions. Due to the high rate
of urbanization, it is no surprise that urban-tourban migration is now the most prevailing spatial
movement in Latin America. Labor migration is
now more pronounced between cities than from
rural to urban areas in Latin American countries.
It mostly occurs from lagging to leading regions
(see World Bank, 2016a). Despite a high degree
of urbanization, there are lagging regions in
all countries of Latin America which are far
from leading regions and economically distant
from megacities, such as the parts of southern
Mexico, western Brazil, northern Argentina
and Andean regions. The rate of poverty (i.e.,
proportion of poor in the population) in these
areas is high though the mass of poverty (total
number of poor) remains concentrated in the
largest cities. Efforts to better integrate lagging
regions to stimulate real economic activity are
high priorities for most governments, and in the
end, may well rely on transport connectivity as a
major and early intervention.11
11. See Plan Belgrano for Argentina and Box 3.3 for a major
announced program by the CAF
41
CONNECTING
PEOPLE
TO OPPORTUNITIES
WITHIN CITIES
In cities, transport connects people with
opportunities and producers with consumers.
Improvements in transport infrastructure (such
as roads and rail, metro and BRT) and services
produce savings in time and costs of interactions,
and in return it enhances the productivity of urban
workers, businesses and industries. The full benefits
of transport improvements goes beyond road
users by enabling clustering of urban activities at
high access locations, a process which improves
efficiency of interactions within clusters, and
consequently enhances overall urban productivity.
But as travel demand exceeds network capacity the
resulting traffic congestion begins to impose costs
of delays directly on city road users and indirectly
on the productivity of urban economy, primarily
by decreasing the locational advantages of cluster
activities in congested areas.
In metropolitan cities of Latin America private
vehicular use (automobiles and motor cycles) usually
outpaces the road capacity causing congestion and
long commute times for workers, with significant
variations in modal shares across cities (see Figure
3.1). Average motorization rates in Ecuador, Peru,
Bolivia and Colombia are between 50-70 vehicles
per 1000 inhabitants; it is much higher (viz., 100 to
185 vehicles per 1000 persons), however, in much of
the region, especially if compared to Asia’s average
of 50 in 2009. In Mexico City, two new cars enter
into circulation every time a child is born (Jiron,
2011). During 2000-2010, the average annual growth
rate of motorized vehicles in most countries in the
region exceeded 5 percent. And in Brazil it reached
16.7 percent per year, though almost 38 percent of
registered vehicles were motorcycles (Hidalgo &
Huizenga, 2013).
This trend of rapid motorization and inadequate
public transport services is a matter of serious
concern for most large cities and more so in
Mexico City and Buenos Aires. The rising levels of
urban air pollution, traffic delays, fatalities in road
accidents and carbon emissions, the “negative
externalities” of transport, are taking a toll on the
urban economy and lives of urban residents. It is
jeopardizing the region-wide drive to reduce carbon
emissions in support of climate change goals. In
2007, the estimated average economic value of
these externalities was US$1,000 per person per
year in selected large cities of the region. The city
with lowest aggregate externalities per person was
Curitiba at US$591 per person per year, almost 11
percent of the Curitiba resident’s average annual
income, while the largest externalities per person
per year estimated for Mexico City was US$1,325,
representing about 22 percent of the average
annual income of city residents. These are indicative
figures but illustrate the degree to which large cities
are experiencing motorization linked diseconomies,
despite popularity of public transport use in many
cities (see Table 3.1).
To manage transport sustainability issues, cities
need a set of mutually interdependent measures with
three broad objectives — (a) to reduce overall travel
demand (Vehicle Miles/Km travelled, “VMT or VKT”)
by shaping urban development and its activities, (b)
to limit use and ownership of personal motorized
modes (cars and motor cycles) while promoting the
use of affordable and accessible public transport
and non-motorized travel (walk and bike), and (c)
to reduce emissions by promoting low carbon fuel
and vehicle technologies. However, in most Latin
American cities, the demand for affordable and
reliable public transport is outpacing the supply,
particularly in peri-urban areas where a high share
of the working poor are obliged to live. For instance,
in Mexico City beyond the 201 km network of metro
system, residents are obliged to use two to three
separate shared taxis or micro-buses (“collectivos”)
to get to job sites. The lack of good connectivity in
peri-urban areas has increased both time and cost
of travel significantly and the poor suffer the most.
This is a worldwide phenomenon, with estimates
showing, for example, that workers in the greater
42 — Cities as Growth Accelerators: Fostering National and Urban Development Policies for Success
FIGURE 3.1
Modal Shares of Travel in Selected Latin American Cities (2007)
Percentage
100
80
60
40
20
Buenos Aires
San Jose
São Paulo
Curituba
Guadalajara
Leon
Caracas
Santiago
Porto Alegre
Belo Horizonte
Bogota
Mexico City
Lima
Montevideo
Rio de Janeiro
La Paz
0
Walking and biking
Public transport
Cars and motocycles
Modal share for passenger urban mobility in selected cities (2007) (OMU CAF, 2010 —all cities except La Paz; FTS survey; UNCRD-IDB, 2011
for La Paz)
Source: Hidalgo & Huizenga (2013)
Johannesburg, South Africa metro area spending
a large proportion of wages on transport costs and
also traveling many hours to and from work.
For large cities of the region, intra-urban spatial
inequity, especially as seen in the distances
between where people work and where they
live, is a main driver of persistent inequality.
Of course, outlying areas also suffer from
inadequate access to a range of public services
and to inferior service delivery, in education and
health in particular. The concept of accessibility,
a measure of the potential for accessing
opportunities (jobs, school, clinics, playfields
etc.) within a pre-defined threshold (usually time
or cost), helps to analyze spatial disparities in
accessing economic and social opportunities in
a city. For instance, if the threshold is assumed to
be one hour then the job accessibility of a location
will be the number of jobs that the residents of
that particular location can access within an
hour. Accessibility of a neighborhood can be
improved either by improving transport services
to opportunities or by bringing opportunities
closer to that neighborhood. By maintaining
citywide adequate level of job accessibility a city
improves worker’s access to a wider mix of jobs,
facilitates matching of skills with jobs, and permits
43
TABLE 3.1
Estimated Transport Externalities in Selected Large Cities of Latin America
Metropolitan
areas
Travel time
Traffic
fatalities
Minutes/
person/day
Deaths/
100,000
people/year
CO
HC
NOx
SO2
PM
CO2
Economic
value
USD/
person/
year
Ton/millon people/day
Belo Horizonte
46.00
7.30
35.0
8.33
5.18
0.187
0.312
813
709.56
Bogotá
67.93
6.94
71.0
9.76
7.02
0.243
0.141
1021
983.17
Buenos Aires
64.62
6.92
74.9
19.82
9.20
0.633
0.693
1733
962.11
Caracas
62.20
5.96
126.4
20.29
8.61
0.765
0.444
1284
927.38
C. de México
87.57
11.29
128.3
20.77
8.40
0.400
0.426
1328
1325.51
Curitiba
40.41
4.20
39.1
9.47
4.60
0.174
0.313
775
591.10
Guadalajara
65.60
15.84
93.0
9.58
8.46
0.229
0.343
1142
1114.33
León
60.99
14.33
57.4
6.32
6.32
0.147
0.221
822
1114.99
Lima
72.85
6.32
96.1
8.58
10.55
1.627
0.625
1441
1049.79
Montevideo
45.18
10.78
39.4
6.18
4.45
0.603
0.528
668
758.49
Porto Alegre
40.26
11.40
51.8
12.58
6.10
0.293
0.410
1040
719.64
Río de Janeiro
59.72
12.29
63.4
14.00
9.84
0.318
0.468
1449
981.47
San José
45.86
7.93
65.3
10.49
6.37
1.088
0.699
1099
735.77
Santiago
86.59
5.35
11.6
1.28
2.17
0.348
0.232
1036
1156.22
São Paulo
55.56
14.20
68.6
16.93
6.19
0.490
0.437
1200
961.90
Promedio
66.00
9.60
78.1
14.34
7.56
0.512
0.440
1264
1014.40
Note: data on travel time, fatalities and emissions from OMU CAF (2010), economic value estimated by the authors. Assumptions:310
days per year; value of time: USD 2.35/h; value of life: USD 1673.584/fatality; value of emissions: carbon monoxide (CO) –­ USD 1000.0/ton;
hydrocarbons (HC) ­– USD 2200.0/ton; nitrogen oxides (NOx) –
­ USD 2500.0/ton; sulfur dioxide (SO2) ­– USD 800.0/ton; particulate matter
(PM) –
­ USD 30,500.0/ton; carbon dioxide (CO2) ­– USD 20.0/ton.
Source: Hidalgo & Huizenga (2013)
efficient interactions among various economic
actors. The process enhances productivity
and livability of an agglomeration economy.
Therefore, accessibility measures, the outcome
of transport and land use interactions, are useful
tools to expose issues of spatial inequities that
exist in cities and around cities.
For instance, the development of Buenos Aires,
over the past two decades, has been characterized
by low population density with peripheral growth
consisting of high income, gated communities and
low income housing. In the past, spatial growth of
cities was largely shaped by railway networks. But
after 1980 the expansion of highways connecting
the center city with periphery of Greater Buenos
Aires has accelerated low-density development
and dependency on the use of motorized
personal modes of transport. This trend of low
density, auto-oriented periphery development
with limited supply of public transport services
is severely limiting access to economic
opportunities for low income residents of areas
that are highly dependent on public transport. A
44 — Cities as Growth Accelerators: Fostering National and Urban Development Policies for Success
study of accessibility and growth (Peralta Quiros
& Mehndiratta, 2015) suggests that Buenos
Aires has grown largely in areas with poor transit
employment accessibility.
Similarly, many residents of Mexico City’s peripheral
communities which are not served by the 201 Km
metro system spent over 3 hours (see the city-wide
average commuting time in Table 3.1) travelling to
and from work and incur between 20-25 percent of
daily wages in travel expenditures. Moreover, transit
employment accessibility reduces informality as
seen in the case of Sao Paulo. Between 2000 and
2010 a study found that improvement of public
transport services had reduced informality rates
(participation in informal sector jobs) on average
16 percent faster compared to areas that faced
delays in upgrading public transport services
(Moreno-Monoroy & Ramos, 2015). These trends
co-exist with improvements in income distribution
that is noteworthy in Brazil and that is more due to
labor market gains via employment than to transfer
programs (see Frischtak, 2012).
Today,
transportation
experts
increasingly
consider accessibility to be a better measure of
intra-urban connectivity than traditional mobility. It
is at least as important for metropolitan residents
to be able to access a range of activities, such
as jobs, via the transportation system, than it is
for systems to simply move vehicles faster and
reduce travel times. However, when it comes to
the question of how effectively urban transport
infrastructure connects people and jobs within and
across metropolitan areas, strikingly little is known.
There are few comprehensive national databases
of the spatial geography of public transport
services, and even fewer metropolitan areas use
factors like job accessibility via transit to drive
investment decisions. The scope for connecting
poverty mapping to affordable transport access
is an area for additional analytic effort, leading
to important policy considerations to improve
income inequalities in urban areas. Given the
limited resources and the competing investments
needs in large cities, it has become increasingly
important to understand not just the location and
frequency of public transport, but ultimately how
well public transport aligns with where people
work and live. The achievement of many 2030
SDGs will revolve around the way in which cities
and national administrations deal with accessibility
and affordability of transport concerns.
4—
CONCLUDING
REMARKS
AND POLICY
OBSERVATIONS
46 — Cities as Growth Accelerators: Fostering National and Urban Development Policies for Success
The interests of national governments to find sources
of economic growth that are sustainable and more
equally shared among members of society have
never been greater. This reality stems from the
following factors: first, globalization has run into
some setbacks and global investment rates have
not kept pace despite historically low interest rates
with the amounts needed to further the economic
expansion that is in the interest of emerging and
developing economies in particular; second, the
issue of sustainability is uppermost in the global
agenda as global warming threatens parts of the
globe and increases economic uncertainty, nowhere
more clearly that in cities; and lastly, the issue of
inequality has increased in importance, even as
significant gains in absolute poverty reduction have
been achieved, and it is clear that the achievement
of SDGs will require a major effort in the world’s
cities to deal with inequalities of opportunity and
inequities of economic and social outcomes.
—— Second, to be effective, national development
policies must be better aligned with urban
policies; in other words, only with coordination
policies between cities and national government
on vital issues, such as infrastructure investment,
employment and skill development, and
basic service provision, can real progress be
achieved. To be frank, devolution of power must
be matched with effective coordination, and
this is often lacking in the national economic
policymaking circles.
The conclusion to be derived from this fresh reality
in 2016 is that a major effort in the world’s cities is
indispensable for the period 2016-2030, during
which the urban landscape will undergo significant
shifts. Whereas past decades may have needed to
deal with rural poverty, and there clearly are major
challenges remaining in that ambit, the name of the
game is how to make cities more productive, more
manageable, and more conducive to the aspirations
of increasing urbanized populations. This challenge
is too great to be left entirely to city administrations
alone. Local management has tremendous potential
advantages, but only if matched both with national
infrastructure investments and coordination with
national development strategies and policies. Hence
our major conclusions begin with the following
observations and calls to action to policymakers:
The CAF as well as other external financiers can
have a helpful supporting role in all three of the
aforementioned challenges. These efforts in Latin
America can be replicated in other regions as well by
multilateral development efforts that seek to draw in
all players, both domestic and external. A significant
investment in the policy dialogue between cities
and national governments is long overdue. This
needs to be a priority for action. Moreover, there is
also a pronounced trend to ignore urban problems
until they reach crisis levels. This is costly, politically
damaging, and societally painful as seen in rising
crime statistics and worsening inequality in cities.
There is ample evidence that dictates the nature of
the problems to be faced going forward; yet, the
pace of strategic directions for effective action lags
behind. Habitat III provides an ideal opportunity for
governments and advisors to take stock and plan
more effective interventions for the 2016-2030
period that will in large measure determine whether
countries and their increasing urban populations
manage to effectively cope with the challenges
before them. Time is of the essence and the stakes
have never been higher.
—— First, cities, and here we speak not only of
primate cities but also of intermediate-sized
cities, and more importantly of networks of urban
agglomerations, will be where the action will be
on job and income creation, improvements in
climate change management, and access to vital
services that can either facilitate or retard the
achievement of economic and social goals, such
as the SDGs.
—Third, one of the vital keys to linking cities if various
sizes in competitive networks is infrastructure
connectivity, an effort that involves national
governments, local governments, aid agencies,
and the private sector. These efforts can be
complementary; however, this necessitates
both better planning and effective execution
according to a unified strategy for development.
——
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